Consider the production cost information for Mama Italiano Sauce given below: Ma
ID: 2758689 • Letter: C
Question
Consider the production cost information for Mama Italiano Sauce given below:
Mama Italian Sauce
Production Cost Budget
April 2008
Production - Jars of sauce
20,000
Ingredient cost (variable)
$16,000
Labor cost (variable)
9,000
Rent (fixed)
4,000
Depreciation (fixed)
6,000
Other (fixed)
1,000
Total
$36,000
The company is currently producing and selling jars of sauce The jars of sauce sell for $4 per jar. The company is considering lowering the price to $3.70 per jar. Suppose this action will increase sales. What is the incremental costs associated with producing an extra 71,750 jars of sauce?
Mama Italian Sauce
Production Cost Budget
April 2008
Production - Jars of sauce
20,000
Ingredient cost (variable)
$16,000
Labor cost (variable)
9,000
Rent (fixed)
4,000
Depreciation (fixed)
6,000
Other (fixed)
1,000
Total
$36,000
Explanation / Answer
Additional Production 20000 71750 units ingredient cost (variable) 16000 57400 labor cost (variable) 9000 32287.5 rent fixed 4000 0 depriciation (fixed) 6000 0 other (fixed) 1000 0 Total incremental cost 89687.5
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